All posts tagged AAII

What’s the difference between this equity rally and all the other hopeful upticks we’ve seen over the past couple of years?

The answer seems to be that, this time, retail investors are getting back in to a more significant degree. According to HSBC, while retail interest in equity has been sporadic at best since at least 2011, and outflows have dominated since 2009, the latest spurt of buying has lasted no less than nine weeks. That makes it rather a standout.

Famously unscientific, but also famously enduring, having been around since 1987, this poll merely asks members how they feel about stock markets over the next six months. There’s no nuance; respondents just have to pick between bullish, bearish or neutral.

Last week, the Association members were a bullish lot; more bullish indeed than they’ve been since January 2011, with 52.3% of them saying they felt good about stocks’ chances. That’s comfortably above the long-term average of 39.0%, and the ninth time it’s been topped in eight weeks.

The process couldn’t be simpler or, you may well think, less rigorous. Respondents merely have to declare their overview for the next six months: bullish, bearish or neutral. Click of the mouse. Job done.

And, when asked last week, 28% said they were bearish, 14% came over all Scandinavian and opted for neutrality, and a whopping 58% said they were bullish.

But hold on a moment. That last cohort seems rather large, doesn’t it?

Indeed, look back and you’ll see the bullish lobby is more crowded than it’s been all year. In fact, you have to go back to January 2007 to find more optimism. There have been only 37 weeks in all of the last 23 years when AAII members were more upbeat.

So, historically, we’re at a pretty extreme level.

The odd thing is, most of the extremes in the survey correspond to known periods of stock strength or weakness. Respondents were overwhelmingly bullish for much of 2003, for example, as stocks pulled themselves out of the dotcom mire. Similarly, they were hugely bearish towards the nadir of the financial crisis in the early years of 2009.